Impairment or amortization of goodwill? An analysis of CFO perceptions of goodwill accounting

Given the ongoing controversy around the accounting treatment of goodwill and the search by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) for improvements to goodwill accounting, this study surveys a global sample of 352 chief financial officers (CFOs) to understand their perceptions of adopting a goodwill impairment-only approach compared to an amortization model. More than half of the respondents agree that alternative accounting treatments of impairment testing might provide more useful information. However, almost two thirds still prefer goodwill impairment testing to the amortization process. Theoretically, the study shows that the impairment-only model preference is associated with characteristics on an individual, firm and country level. The results indicate that more expert CFOs and overall CFO perceptions of firms’ economic conditions and the role of external auditors affect preference for the goodwill accounting model. Further, there is evidence that dominant ownership structures and accounting culture affect CFO preferences. The study investigates several areas in which regulators and standard setters can intervene, thereby contributing to the debate on whether to reintroduce the amortization of goodwill.     

Social forecasting: An integral part of corporate planning?

The increasing need for business to monitor the social dimensions of its environment and, hopefully make some forecasts of future trends has met with some constructive response from academics and consultants although not as yet on a very liberal scale. The published literature does not indicate to what extent companies in general attemp social forecasting and, where they do, the degree of integration which exists within their corporate planning systems. The authors, therefore, decided to survey a sample of British organizations to see if they could shed some light on these issues and thereby add some information to the excellent accounts of individual cases of social forecasting in, they suspect, the more advanced and atypical companies. The survey suggests a general picture of: awareness of the value of social forecasting; fairly widespread ignorance of the techniques which do exist, primitive though these may largely be; successful integration of social forecasting into the corporate planning systems of a substantial number of organizations but not in the majority.     

Wither or whither London? An application of industry structure analysis

Industry structure analysis provides a tool for managers and leaders to more clearly understand the context in which day-by-day decisions are to be taken. It encourages a systematic analysis of ‘whither an enterprise?’ in the sense of ‘in what direction’ and ‘wither an enterprise?’ in the sense of ‘to what purpose’. Industry structure analysis applied to London reveals those forces which may doom current approaches to the solution to inner city problems to early failure and suggests new areas for the application of effort. As we enter a decade in which economic, political and social upheaval will be the norm, such a tool could be of use in helping managers in other enterprises to chart a surer course through uncertainty.     

Does order of entry shape competitive strategies? An analysis of European mobile operators

Research on first mover advantages is interested in the performance effects of the order of entry into new markets. However, with a few exceptions, the competitive strategies used by different cohorts of entrants have not been studied. We advance research on first mover advantages by arguing that pioneers and followers differ in terms of the competitive strategy employed. Additionally, our research proposes that the different competitive strategies used evolve over time. To test our hypotheses, we use data from the European mobile industry. Our findings show that pioneers benefit from a hybrid strategy in the initial stages of the market development. However, over time, the relative position of first movers in terms of quality, prices and operating costs worsens.     

Control at work: a generalized resource factor for the prevention of musculoskeletal symptoms?

During the last two decades two potent groups of predictors for work-related musculoskeletal problems have been identified: physical work load and poor psychosocial working conditions. However, little is known about their combined effects. In this study the buffering effect of control at work with respect to the negative effects of psychological demands and physical work load on musculoskeletal problems is examined. All study variables were sampled from 431 people working in geriatric nursing homes in Germany by means of questionnaires. Main effects and interactions were tested with multiple regression analysis. The results showed that control buffered the effects of high psychological demands, but not of high physical work load; the buffering effect of control was observed only when physical work load was low. The combined effects of demands and physical work load were over-additive. Thus, the power of different predictors for musculoskeletal symptoms depended on the level of other predictors. This suggests that the efficiency of certain strategies for the prevention of musculoskeletal problems is likely to depend on the level of risk factors, with different strategies being appropriate for different levels of risk.     

Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study

We use a second‐price common‐value auction, called the maximal game, to experimentally study whether the winner's curse (WC) can be explained by models which retain best‐response behavior but allow for inconsistent beliefs. We compare behavior in a regular version of the maximal game, where the WC can be explained by inconsistent beliefs, to behavior in versions where such explanations are less plausible. We find little evidence of differences in behavior. Overall, our study casts a serious doubt on theories that posit the WC is driven by beliefs.     

Increasing offensive or defensive efficiency? An analysis of Italian and Spanish football

This paper analyses technical efficiency of Italian and Spanish football during three recent seasons, to shed light on the sport performance of professional football clubs. To achieve this we have used mathematical optimisation methods, particularly DEA models, which enable the calculation of the frontiers of efficient production. Some of the most interesting results are the following. Firstly, the Spanish league is clearly more homogeneous and competitive than the Italian league. Secondly, to obtain a better classification in the Italian league, it is much more important to improve defensive, rather than offensive, efficiency. The popular maxim holds in Italy: the best attack begins with a good defence. Third, in Spain our analysis supports the idea that to improve the ranking in the league, the best-rewarded strategy consists in improving offensive efficiency playing at home ground, followed by increasing offensive efficiency when playing away from home.     

Trick or Treat? An Examination of Marketing Relationships in a Nondeceptive Counterfeit Market

Who is most responsible for the proliferation of counterfeit goods—the illicit purveyor of such products or the consumer who procures them? This paper seeks to address this question by presenting a behavior analysis of counterfeit marketing firms in China and the interdependent relationships between legitimate retailers, consumers, and the authorities who populate these competitive environments. This is achieved via an operant interpretation of these key agents and the network of contingent relationships in operation. The results suggest that purveyors of pirate products function as “bad competitors” in the marketplace according to normative business behaviors—behaviors that are amenable to analysis in behavioral terms.     

Will the Truth Set Us Free? An Exploration of CSR Motive and Commitment

This article examines why firms engage in Corporate Social Responsibility (CSR). Specifically, it investigates the relationship between a firm's motivation to engage in CSR and the depth of its commitment. I propose that the enduring debate over CSR and financial performance is misaligned, and that scholars should instead focus on the underlying components of CSR engagement. This research sheds light on the motivational antecedents of a firm's engagement in CSR and their effect on CSR commitment. Despite calls for scientific investigation of this linkage, it has received scant attention in the literature. Pursuing this area of research requires the construction of measures of CSR motivation and CSR commitment, as prior work generally lacks objective analysis. I present measures and a research methodology that test hypotheses about how CSR motivation relates to different levels of CSR commitment. The results of this research both validate and challenge current theory. This refined understanding of CSR engagement may enhance firm transparency and accountability to stakeholders. It may reduce the uncertainty in both internal and external assessments of firm CSR and the potential for social and financial impact.     

Does business model affect accounting choices? An empirical analysis of European listed companies

Financial accounting research increasingly includes business model (BM) constructs, but the ability of financial reporting to capture BM characteristics has not been verified. This study empirically explores the links between BMs and accounting choices by clustering a sample of 103 European listed companies according to an innovative, nonlinear algorithm (self-organizing map) that uses pertinent industrial, strategic, governance, and financial variables to uncover different dimensions of a BM. The authors investigate accounting choices (accounting measurement, accounting treatment, and disclosure level) by companies that belong to the different identified BMs. The analysis of the relations between different company BMs and their accounting choices indicates no significant connections, which offers empirical confirmation of the criticisms regarding the inability of financial reporting to represent (or even consider) a company’s BM. The results suggest further attempt to capture BM in financial reporting, which requires regulators to establish accounting standards that acknowledge the value creation processes of an entity and incentivize managers to represent those processes.     

Why Do People Keep Their Promises? An Experimental Test of Two Explanations1

Numerous psychological and economic experiments have shown that the exchange of promises greatly enhances cooperative behavior in experimental games. This paper seeks to test two theories to explain this effect. The first posits that individuals have a preference for keeping their word. The second assumes that people dislike letting down others' payoff expectations. According to the latter account, promises affect behavior only indirectly, because they lead to changes in the payoff expectations attributed to others. I conduct an experiment designed to distinguish between and test these alternative explanations. The results demonstrate that the effects of promises cannot be accounted for by changes in payoff expectations. This suggests that people have a preference for promise keeping per se.     

Institutionalization or Decoupling? An Exploratory Analysis of the UN Global Compact LEAD Initiative

Institutionalization occurs when organizations adopt policies and practices in an attempt to increase their legitimacy and competitive position. This process assumes that an organization's formal policies (macro‐level) are translated into organizational practices (micro‐level). This translation, however, can fail to occur, resulting in organizational decoupling and de‐institutionalization. Drawing on an institutionalization typology based on different levels of legitimacy (macro) and taken‐for‐grantedness (micro), the article draws on data from an assessment of the United Nations Global Compact LEAD initiative, assessing the extent to which this initiative is being institutionalized in the member firms and examining the implications for the LEAD initiative and our thinking about institutionalization.     

Is Eradication of the Pinewood Nematode (Bursaphelenchus xylophilus) Likely? An Evaluation of Current Contingency Plans

The pinewood nematode (PWN) is one of the worst tree‐killing exotic pests in East‐Asian countries. The first European record of establishment in Portugal in 1999 triggered extensive surveys and contingency plans for eradication in European countries, including immediate removal of large areas of conifer host trees. Using Norway as an example, we applied a simulation model to evaluate the chance of successful eradication of a hypothetical introduction by the current contingency plan in a northern area where wilting symptoms are not expected to occur. Despite a highly variable spread of nematode infestations in space and time, the probability of successful eradication in 20 years was consistently low (mean 0.035, SE 0.02). The low success did not change significantly by varying the biological parameters in sensitivity analyses (SA), probably due to the late detection of infestations by the survey (mean 14.3 years). SA revealed a strong influence of management parameters. However, a high probability of eradication required unrealistic measures: achieving an eradication probability of 0.99 in 20 years required 10,000 survey samples per year and a host tree removal radius of 8,000 m around each detection point.     

Diabolical dictators or capable commanders? An investigation of the differential effects of autocratic leadership on team performance

Autocratic leader behavior is often seen as negative for team morale and performance. However, theories on social hierarchy suggest that autocratic leadership may also positively affect morale and performance through the creation of a psychologically appealing, hierarchically-ordered environment of predictability and security. We propose that autocratic leadership can foster team psychological safety when team members accept the hierarchy within the team. In contrast, when members challenge the hierarchy and engage in intrateam power struggles, autocratic leaders' centralizing power behaviors will clash with team members' competition for power and frustrate members, impairing psychological safety and performance. We find support for these ideas in a study of 60 retail outlets (225 employees and their managers) in the financial services industry. As expected, when team power struggles were low, autocratic leadership was positively related to team psychological safety, and thereby indirectly positively related to team performance. When team power struggles were high, autocratic leadership was negatively related to team psychological safety and thereby indirectly negatively related to team performance. These effects were also found when controlling for leader consideration.     

An Evaluation of Train-to-Code to Teach Implementation of PECS©

We evaluated the impact of a customized training program developed using an observation and behavioral coding software system (i.e., Train-to-Code) to teach implementation of Phase 3A of the Picture Exchange Communication System to four undergraduate students. The training program coached participants on all relevant steps of the procedure. To accomplish this, participants viewed multiple video exemplars of correct and incorrect implementation of each step in the sequence of behaviors, and coded these behaviors in accordance with a taxonomy developed by the experimenters. The training program provided prompts and feedback in real time based on participants’ current level of performance and required mastery of seven levels of training, each with fewer prompts and feedback, until an expert level of unprompted coding performance was demonstrated. A multiple baseline design across participants was used to evaluate the effectiveness of the training program on levels of procedural integrity during performance test probes conducted with a confederate learner before and after the completion of the training program. Results showed improved performance relative to baseline following training, and maintenance of performance at 2–4 weeks follow-up. A conceptual analysis of these findings will be discussed, along with implications for staff training in applied settings.     

Is stock price a good measure for assessing value-relevance of earnings? An empirical test

Recently, a growing body of literature has created a widespread impression that financial statements have lost their value-relevance because of a shift from traditional capital-intensive economy into a high technology, service-oriented economy. In particular, the claim is that financial statements are less relevant in assessing the fundamental value of high technology, service-oriented firms/activities, which are by nature knowledge-intensive. These conclusions are based on past studies that examine the association between accounting numbers (i.e., earnings and book values) and stock prices and show that, in general, the association between accounting information and stock prices has been declining, over time. These findings have been interpreted to be the result of a decline in value relevance of accounting. We examine the predictive content of stock prices and accounting information, as against the contemporaneous association between accounting information and stock prices. We find that while both the predictive content of earnings and prices declined over time, the predictive content of price signals declined by even more. Our analysis suggests that the declining association could be the consequence of increased noise in stock prices over time resulting from increases in trading volume driven by non-information based trades, and not just a decline in the predictive content of earnings. More importantly, this conclusion is consistent with the insights of the noisy rational expectations equilibrium framework analysis, i.e. that increased noise has caused the predictive content of prices to degrade over time. Overall, our evidence suggests that stock prices may not be an appropriate benchmark for gauging the information content of accounting earnings.

The face of wrongdoing? An expectancy violations perspective on CEO facial characteristics and media coverage of misconducting firms

We examine the extent to which CEO facial characteristics matter in media coverage of firms implicated in corporate wrongdoing. We build on literature discussing that leaders’ faces may convey subjective behavioral expectations and that outsiders often over-rely on facial cues when making social judgments. We situate these insights in the context of corporate wrongdoing, where information incompleteness may be particularly high, potentially prompting outsiders to draw on CEO facial characteristics in forming their social judgments. Drawing on Expectancy Violations Theory, we hypothesize that firms led by CEOs expected to be more trustworthy, as inferred from their lower facial width-to-height ratio (fWHR), will draw greater attention and more negative opinions from the media in the wake of corporate wrongdoing. Results of an experiment (Study 1) where CEO fWHR was digitally manipulated support this counterintuitive logic, while findings based on an archival study of corporate wrongdoing of US firms from 2003 to 2016 (Study 2) partly generalize the rationale in the field setting. Our findings suggest that subjective expectations inferred from CEO faces may serve as part of a complex and underexamined source of variation in media coverage of misconducting firms. We discuss implications for theory and practice.     

To Sample or Not to Sample? An Analysis of the Need for Salmonella Sampling of Smaller Poultry Processors

Within the European Union (EU), microbiological criteria (MC) sampling for Salmonella in poultry was introduced in 2005. In particular, processors had to meet a target of fewer than seven positive samples out of 50. However, processors producing small amounts of poultry meat did not have to sample if national authorities determined this was an acceptable risk. The U.K. Food Standards Agency (FSA) thus has a sampling regime based on throughput that allows smaller processors not to sample. In 2011, the limit of 7/50 was reduced to 5/50. Given the current uncertainty regarding U.K. trade relations with the EU, the U.K. FSA decided to conduct a new risk assessment of the risks of Salmonella produced by smaller processors, to determine whether sampling was now necessary. Current evidence suggests that an MC sampling regime in smaller slaughterhouses is not warranted from a national public health perspective. Because of the insensitivities of the MC sampling scheme, the introduction of MC sampling into smaller slaughterhouses would only be necessary if the suspected carcass prevalence was 15% or more. While our analysis is prone to uncertainty, we estimated that the carcass prevalence in smaller processors is below this. Thus, we recommended that the current sampling framework, allowing smaller processors not to sample, was still applicable.     

Is there an Expectations Gap in the Roles of Independent Directors? An Explorative Study of Listed Chinese Companies

This paper investigates whether an expectations gap exists in the control, strategic and resource provision roles that independent directors play in the corporate governance of listed Chinese firms and the factors that affect their performance of these roles. For this purpose, we interviewed Chinese executive directors, independent directors, institutional investors and stock exchange regulators. We find a performance gap but no reasonableness gap with respect to the control and strategic roles. The results suggest that the performance gap may be attributed to such factors as the ill‐defined roles, independent directors' limited amount of time commitment and their lack of competence and objectivity. Interestingly, there is disagreement over the protection of minority interest as the objective of the control role. We find no consensus on the desirability, reasonableness and effectiveness of independent directors' resource provision role, perhaps because of a pejorative interpretation of this role as an exercise of guanxi.